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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 14A
(RULE 14A-101)
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act of 1934
Filed by the Registrant [ ]
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[X] Definitive Additional Materials THE COMMISSION ONLY (AS
[ ] Soliciting Material Pursuant to PERMITTED BY RULE 14a-6(e)(2))
Rule 14a-11(c) or Rule 14a-12
ALLIED RESEARCH CORPORATION
(Name of Registrant as Specified In Its Charter)
ZILKHA CAPITAL PARTNERS, L.P.
LT. GENERAL WILLIAM M. KEYS, USMC (RET.)
JOHN P. RIGAS
JEAN-CLAUDE ROCH
JOHN R. TORELL III
DONALD E. ZILKHA
(Name of Person(s) Filing Proxy Statement, if Other Than the Registrant)
Payment of filing fee (Check the appropriate box):
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pursuant to Exchange Act Rule 0-11 (set forth the amount on which
the filing fee is calculated and state how it was determined):
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ZILKHA CAPITAL PARTNERS, L.P.
767 FIFTH AVENUE, NEW YORK, NEW YORK 10153
TELEPHONE: (212) 935-9797 FACSIMILE: (212) 688-4621
May 21, 1999
TIME IS SHORT. ALLIED'S ANNUAL MEETING IS JUNE 9.
VOTE YOUR GOLD PROXY CARD FOR THE NEW NOMINEES TODAY!
DEAR FELLOW ALLIED RESEARCH SHAREHOLDER:
We are writing to seek your support for our five director-nominees, who are
standing for election to the Board of Directors of Allied Research Corporation
in opposition to the management nominees at the Company's upcoming Annual
Meeting on June 9, 1999. After you review the biographies of our director-
nominees, we think you will agree that they possess the strong business
experience and knowledge, especially in the defense industry, necessary to help
maximize Allied Research's shareholder value.
Zilkha Capital Partners, L.P. is the owner of approximately 4.3% of the
outstanding capital stock of Allied Research. We are a private equity investment
partnership dedicated to the long-term capital appreciation of its equity,
equity-related and debt investments. AS MAJOR SHAREHOLDERS OF ALLIED RESEARCH WE
HAVE BEEN KEENLY DISAPPOINTED WITH MANAGEMENT'S PERFORMANCE. UNFORTUNATELY,
SINCE ALLIED MANAGEMENT HAS REPEATEDLY REFUSED TO MEET WITH US TO DISCUSS OUR
IDEAS FOR IMPROVING THE COMPANY, WE HAVE BEEN FORCED TO TAKE THIS STEP OF GOING
DIRECTLY TO THE SHAREHOLDERS -- THE REAL OWNERS OF ALLIED RESEARCH -- TO SOLICIT
PROXIES TO REPLACE THE MANAGEMENT NOMINEES.
IMPORTANT NOTE
AS OF TODAY'S DATE, ALLIED RESEARCH MANAGEMENT HAS FAILED TO GIVE US A
SHAREHOLDER LIST TO WHICH WE ARE FULLY ENTITLED UNDER DELAWARE LAW, AND WE HAVE
NO MEANS TO TELEPHONE YOU TO DISCUSS THE NEW NOMINEES AND OUR PLATFORM IN MORE
DETAIL. THEREFORE, WE WELCOME YOUR CALLS TO US TO DISCUSS THESE ISSUES. YOU MAY
CONTACT ZILKHA CAPITAL AT (212) 935-9797 OR MACKENZIE PARTNERS, INC., WHICH IS
ASSISTING US WITH THIS ELECTION CONTEST, TOLL-FREE AT (800) 322-2885.
DON'T BE FOOLED BY MANAGEMENT'S CLAIMS.
Don't be misled by management's mischaracterization of Zilkha Capital's
intentions regarding the Company. The facts are as follows:
- At our prompting, the President of the Company met with representatives
of Zilkha Capital to explore opportunities for Zilkha Capital to invest
in the Company and provide strategic guidance through Board
participation. Following this meeting, AT THE COMPANY'S INVITATION, we
submitted a proposal offering the Company A MINORITY INVESTMENT at a
substantial PREMIUM to the market price of the Company's stock and in
return requested a minority position on the Board. At no point did any
member of the Company's Board of Directors choose to meet with us to
discuss any aspect of our proposal.
HOW CAN MANAGEMENT CLAIM THAT THE BOARD REJECTED OUR OFFER AFTER "CAREFUL
CONSIDERATION," IF IN FACT THEY HAVE NEVER MET WITH US AT ANY TIME TO DISCUSS
THE MERITS OF OUR PROPOSAL?
- We also urge shareholders to bear in mind that at no point did Zilkha
Capital seek a control position in the Company. As stated in our proxy
materials, any purchase of 20% or more of the Company's stock would, in
any case, require a stockholder vote under applicable stock exchange
rules. Zilkha Capital would welcome such a vote. Furthermore, if our New
Nominees are elected they will not consider an investment by Zilkha
Capital without first obtaining a fairness opinion from an independent
financial advisor. Given the Company's current financial condition and
the dismal performance of its stock price, we are alarmed that management
would consider a minority
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investment offer at a greater than 20% premium over market price to be an
"unnecessary, highly dilutive" proposal unworthy of any face to face
discussion or negotiation.
- Management would have you believe that our plan is a list of vague
directives, but the fact is that until we replace the Board and are able
to analyze the Company from the inside, it is impossible to develop more
specific plans. As described in our proxy materials, we believe we can
initiate several fundamental changes right away to unlock shareholder
value, including restructuring the Company's financing arrangements and
its management team.
- MANAGEMENT WOULD ALSO HAVE YOU BELIEVE WE ARE NOT INTERESTED IN OTHER
SHAREHOLDERS, BUT THE FACT IS THAT ZILKHA CAPITAL OWNS CONSIDERABLY MORE
STOCK THAN THE ENTIRE BOARD AND THE EXECUTIVE OFFICERS OF ALLIED. OUR
INTERESTS AS MAJOR SHAREHOLDERS ARE ALIGNED WITH THOSE OF YOURS -- TO SEE
THE VALUE OF ALLIED MAXIMIZED FOR THE BENEFIT OF ALL ITS OWNERS.
DON'T LET MANAGEMENT DISTRACT YOU FROM THE COMPANY'S FUNDAMENTAL PROBLEMS WHICH
THE BOARD HAS CONTINUOUSLY FAILED TO SOLVE.
ALLIED HAS FAILED TO INCREASE THE VALUE OF YOUR SHARES
DURING ONE OF THE GREATEST BULL MARKETS EVER.
Over the past five years, from May 3, 1994 to May 3, 1999, the Company's return
on its common stock has significantly underperformed the Company's primary
competitors and major market indices as evidenced by the following chart, which
clearly speaks for itself:
<TABLE>
<CAPTION>
<S> <C>
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Alliant Techsystems....................................... UP 253%
S&P 500 Index............................................. UP 199%
Dow Jones Industrial Average.............................. UP 197%
Primex Technologies....................................... UP 114%
S&P Smallcap Aerospace/Defense Index...................... UP 37%
Allied Research........................................... DOWN 1.98%
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</TABLE>
- On the day before Zilkha Capital launched its proxy fight, the Company's
stock price closed at $6.50, only marginally above its cash per share of
$6.26. WHAT DOES THAT SAY ABOUT HOW THE MARKET VALUES THE COMPANY AND ITS
CURRENT MANAGEMENT? WE THINK THE ANSWER IS CLEAR.
- Management criticizes Zilkha Capital for proposing to invest in the
Company at an average price of $7.85 per share, a 26% discount to book
value. The real story here is that on the day Zilkha Capital made its
proposal to invest in the Company and as of the day before Zilkha Capital
launched its proxy fight, the Company's stock was trading at over a 40%
discount to its book value. IT IS NOT OUR FAULT THAT THE BOARD'S
MISMANAGEMENT HAS ALLOWED THE COMPANY'S STOCK PRICE TO FALL TO SUCH A
SIGNIFICANT DISCOUNT TO BOOK VALUE. THIS IS JUST ANOTHER RESULT OF THE
BOARD'S POOR MANAGEMENT OF THE COMPANY.
ALLIED HAS FAILED TO DEVELOP AN EFFICIENT CAPITAL STRUCTURE.
- Because of Allied's long-standing inefficient capital structure, we
believe the Board has failed to effectively utilize and deploy the
Company's large cash reserves, which totaled more than $29.5 million on
March 31, 1999, and which have remained consistently in excess of $22
million at the end of each year since 1994.
- GIVEN THESE AMPLE CASH RESOURCES, WE FAIL TO UNDERSTAND WHY THE COMPANY
HAS BEEN FINANCING OPERATIONS WITH WHAT ARE, IN OUR VIEW, BANK LOANS WITH
EXCEEDINGLY ONEROUS TERMS. ALLIED'S INTEREST EXPENSE FOR 1998 AND THE
FIRST QUARTER OF 1999 IS SIGNIFICANTLY HIGHER THAN ITS INTEREST INCOME IN
THESE PERIODS.
- Management suggests that Zilkha Capital's offer to invest $9 million of
capital in the Company is inconsistent with our criticism of its
ineffective use of cash. Don't be fooled. The answer to ineffective cash
deployment is not to reject additional investment but rather to put those
cash resources to better use, which Zilkha Capital intended to ensure
through its board participation.
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- Furthermore, the current downturn in business of MECAR, the Company's
principal subsidiary which accounted for approximately 78% of the
Company's 1998 revenues, as evidenced by MECAR's results during 1998 and
the first quarter of 1999 and the restrictions management has allowed to
be placed on existing cash resources, may soon require the need for
additional financing.
WHY HAS THE COMPANY FAILED TO DEPLOY ITS CASH MORE EFFECTIVELY? WHAT IS THE
EFFECT OF THE FAILURE OF MANAGEMENT TO MAXIMIZE RETURNS ON THE AVAILABLE CASH
HAVE ON THE COMPANY'S SHARE PRICE? WE THINK THE ANSWERS ARE CLEAR!
ALLIED HAS FAILED TO ACHIEVE SUITABLE OPERATING RESULTS.
- The Company's weak financial performance throughout 1998 and into the
first quarter of 1999 and its dwindling backlog create significant
concern over the Company's future economic prospects.
- IN THE FIRST QUARTER OF 1999 THE COMPANY'S REVENUES DROPPED 23%, NET
EARNINGS DROPPED 44% AND NET EARNINGS PER SHARE DROPPED OVER 45%, AS
COMPARED WITH THE SAME PERIOD IN 1998.
- The Company's has been surviving on its backlog, which has rapidly
decreased by over 48% from $92.8 million at the beginning of 1998 to only
$48 million at the beginning of 1999, to $26 million as of March 31,
1999. The backlog of MECAR has dwindled from $65.8 million at the
beginning of 1998 to $22.0 million at the beginning of 1999. As of March
31, 1999, MECAR's backlog was less than $6 million. WHY HAS MANAGEMENT
ALLOWED THE COMPANY'S BACKLOG TO DROP TO SUCH PERILOUS LEVELS?
- Management claims the recent rise in oil prices will accelerate the
receipt of new orders for MECAR. The real question for stockholders is
why has management limited the market for its products to an unstable and
concentrated customer base that is dependent on the price of oil, a
factor that management correctly points out is "beyond the control of any
management team."
WHY HAS THE COMPANY'S LARGEST CUSTOMER FAILED TO PLACE A NEW ORDER SINCE MARCH
1998? WHY HAS MANAGEMENT CONTINUOUSLY FAILED TO DIVERSIFY ITS CUSTOMER BASE OVER
ALL THESE YEARS SO AS TO MITIGATE THIS RISK? ISN'T IT TIME TO TRY A NEW
MANAGEMENT TEAM THAT WILL MOVE TO AGGRESSIVELY EXPAND AND DIVERSIFY THE
COMPANY'S CUSTOMERS AND BUSINESSES?
ALLIED NEEDS NEW DIRECTORS TO REALIZE FULL AND FAIR VALUE
FOR THE BENEFIT OF ALL SHAREHOLDERS.
The Company's disappointing results, in our view, do not bode well for the
Company's financial future, which we believe will be difficult and uncertain
unless swift action is taken. These fears, we believe, are shared by other
shareholders as reflected by the Company's depressed share price. The Board has
failed to implement a strategic plan to reduce its customer concentration,
diversify its businesses, develop new products or enhance the synergies among
its businesses.
WE BELIEVE THESE AND OTHER SIGNIFICANT PROBLEMS WHICH THE COMPANY FACES CANNOT
BE SOLVED BY THE CURRENT BOARD AND MANAGEMENT. WE ARE PROVIDING YOU WITH A
CHOICE OF A COMPETING SLATE OF DIRECTORS, WHO HAVE DEVELOPED A PLAN TO BEGIN TO
ADDRESS THESE ISSUES.
THE NEW NOMINEES.
Let us introduce you to the New Nominees, our slate of five director-candidates
for election on June 9. Ours is an experienced and seasoned slate of executives
with significant defense, finance and management experience gained at the
highest levels of U.S. business, industry and the military:
- Lt. General William M. Keys, USMC (Ret.), 62, Chairman of Keys &
Associates, a business consulting firm and President of Value Properties,
a real estate development and management company in New York City.
General Keys also has held many distinguished leadership positions in the
U.S. Marine Corps, including Commander, U.S. Marine Corps Forces,
Atlantic and is also a consultant to General Motors Defense, Ltd.;
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- John P. Rigas, 35, a co-founder of Zilkha Capital who has more than 10
years experience in private equity transactions and the management of
portfolio companies;
- Jean-Claude Roch, 51, of Lausanne, Switzerland, Vice Chairman of the
Board of Aeroleasing Holding S.A., a private airline company and a
director of a number of European companies;
- John R. Torell, II, 59, Chairman and CEO of a private investment firm
specializing in principal transactions, former President of Manufacturers
Hanover Corp. and currently a director of several public companies
including American Home Products Corporation and The Paine Webber Group;
and
- Donald E. Zilkha, 47, co-founder of Zilkha Capital who has more than 20
years experience in investment management, merchant banking and the
management of portfolio companies.
OUR PLANS TO CORRECT ALLIED'S FUTURE COURSE.
In our view, the Board has failed to implement a strategic plan to reduce its
customer concentration, diversify its businesses, develop new products or
enhance the synergies among its businesses. If elected, the New Nominees,
drawing on their extensive experience with and knowledge of the defense
industry, would take immediate steps to implement the following strategic plans:
- UNDERTAKE A STRATEGIC REVIEW OF THE COMPANY AND EACH OF ITS BUSINESSES,
WITH A VIEW TO DETERMINING WHICH ARE GENERATING ACCEPTABLE RETURNS AND
WHERE OPPORTUNITIES FOR SYNERGIES AND EXPANSION LIE THROUGH INTERNAL
GROWTH AND ACQUISITIONS.
- REORGANIZE AND RESTRUCTURE THE COMPANY'S CAPITAL STRUCTURE, TO FREE CASH
FOR MORE EFFECTIVE UTILIZATION OF ASSETS AND TO CREATE MORE EFFICIENT
FINANCING ARRANGEMENTS.
- STRENGTHEN THE COMPANY'S MANAGEMENT TEAM, WITH THE OBJECTIVE OF HIRING A
QUALIFIED CHIEF FINANCIAL OFFICER AND EXPERIENCED SENIOR OPERATING
MANAGEMENT. MOST IMPORTANTLY, WE PLAN TO RELOCATE THE COMPANY'S OPERATING
MANAGEMENT TO THE APPROPRIATE GEOGRAPHICAL LOCATIONS ABROAD IN ORDER TO
BEST SERVE LOCAL CUSTOMERS' NEEDS.
Through these and other initiatives, we are confident that the New Nominees, if
elected, would be able to begin to unlock the hidden value in Allied's shares
and to develop a comprehensive plan to build shareholder value over the long
term. If, like us, you are not satisfied with the performance of Allied and its
stock price and believe the Company would benefit by having a new state of
directors consisting of the New Nominees, we urge you to vote your GOLD proxy
card in favor of the New Nominees today.
IT'S TIME FOR A CHANGE AT ALLIED RESEARCH.
VOTE YOUR GOLD PROXY CARD TODAY!
YOU SHOULD KNOW THAT EVEN IF YOU HAVE ALREADY VOTED A PROXY CARD FOR MANAGEMENT,
YOU HAVE EVERY LEGAL RIGHT TO CHANGE YOUR MIND AND VOTE THE ENCLOSED GOLD PROXY
CARD IN FAVOR OF THE NEW NOMINEES. IN AN ELECTION CONTEST, ONLY YOUR
LATEST-DATED PROXY WILL COUNT IN THE FINAL TALLY.
If you need assistance in voting your shares or changing your vote, please
contact our proxy solicitor, MacKenzie Partners, Inc. toll-free at (800)
322-2885. We appreciate your consideration of the New Nominees and our platform
for change at Allied Research.
Sincerely,
/s/ JOHN P. RIGAS
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JOHN P. RIGAS
Co-Managing Partner
